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Big Bond Fund's Struggles Quantified

Pimco Total Return Fund had $9.9 billion in withdrawals last month; the fund's manager insists the worst is over for bond investors.

Bill Gross’s Pimco Total Return Fund, the world’s largest mutual fund, absorbed a record $9.9 billion in net redemptions last month as investors fled bonds in anticipation of the Federal Reserve scaling back its purchases.

Pacific Investment Management Co., the Newport Beach, California-based firm that runs the fund, provided the preliminary estimate to Morningstar Inc., the Chicago-based research firm said today in an e-mailed statement. The withdrawals left the fund with $268 billion in assets at the end of June, Morningstar said.

“Money really came out of core bond funds in June,” Michael Rawson, an analyst with Morningstar said in a telephone interview. “The market reacted to the Fed.”

The withdrawals show the vulnerability of Pimco and other fund managers with a heavy weighting in bonds to a sustained decline in fixed-income markets. More than 90 percent of Pimco’s $2.04 trillion in assets as of March 31 were in bonds.

Pimco Total Return lost 2.9 percent this year through yesterday, trailing 87 percent of peers, according to data compiled by Bloomberg. It fell 2.5 percent over the past month, worse than 92 percent of comparable funds.

The 10-year U.S. Treasury note traded at 2.48 percent today, up from 1.93 percent May 31.

Gross’s Outlook

Gross and others have argued that the worst is over for bond investors. In a Bloomberg Radio interview with Tom Keene June 27, Gross said yields on the 10-year notes can go 25 basis points or 0.25 percent, lower, which would help reverse some of the losses in May and June.

Jeffrey Gundlach, founder of Los Angeles-based DoubleLine Capital LP, said in a webcast the same day, “There’s profits to be made in the bond market between now and the end of the year.” Gundlach’s $39 billion DoubleLine Total Return Fund lost 0.3 percent this year, better than 83 percent of rivals.

The highest yields on Treasuries have probably already been reached for the year, according to Bryan Whalen, a portfolio manager at TCW Group Inc. Yields will move in the low to mid-2 percent range this year, he said yesterday in a telephone interview.

The $8.6 billion TCW Total Return Bond Fund lost 0.5 percent this year, better than 80 percent of rivals.

Industry Redemptions

Investors withdrew $52.8 billion from bond mutual funds and $8.9 billion from bond exchange-traded funds through June 24, according to TrimTabs Investment Research in Sausalito, California, surpassing the previous monthly record of $41.8 billion set in October 2008.

The 30-year bull market for bonds probably ended in late April as yields reached a low and prices peaked, Gross said in May. “You need to look at an amalgamation of Treasuries, mortgages, and corporates, and not just Treasuries,” he said in an e-mailed statement. “Measured on that basis, 4/29/13 has been the price high and yield low, to this point.”

Gross’s fund experienced withdrawals in six of the 12 months in 2011, Morningstar data show, as the star bond manager missed a rally in Treasuries and trailed 70 percent of peers for the year, according to data compiled by Bloomberg.

The fund lost $6.7 billion to redemptions in December 2010, the previous high, Morningstar data show.

The $4.4 billion Pimco Total Return ETF has had redemptions of $663 million since May 21, about 13 percent of its assets, according to data compiled by Bloomberg and San Francisco-based IndexUniverse.

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